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HS328 Investment Planning > Chapter 9: Equity Securities - Introduction > Flashcards

Chapter 9: Equity Securities - Introduction Flashcards

1
Q

Holders of ownership shares rights and benefits (4)

A

1.Dividend payments
2. voting rights
3. Limited Liability
4. Distributions of assets in the event of liquidation.

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2
Q

Types of voting rights (3)

A
  1. straight voting
  2. cumulative voting
  3. proxy voting
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3
Q

Straight voting

A

one vote per share of common stock - most common form of voting rights.

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4
Q

Cumulative Voting

A

one vote per share times the number of seats on the board of directors

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5
Q

Proxy Voting

A

involves sending a written authorization to an agent to cast the vote for the shareholder.

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6
Q

Preemptive Right

A

enables the owner to maintain their ownership percentage in the event of a new stock offering or stock split, etc.

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7
Q

Earnings per share

A

profit earned by the company on a per share basis

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8
Q

Earnings Per Share calculation

A

Net Income - Preferred stock dividends
/
weighted average number of common shares outstanding

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9
Q

what two choices do companies have to make when they experience positive net income?

A
  1. reinvest earnings into new or existing projects
  2. pay out dividends
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10
Q

what does a lower Earnings er Share (EPS) represent?

A

dividend payments are sustainable for the corporation

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11
Q

What does a higher payout ratio suggest?

A

the company does not have suitable alternative projects in which to invest.

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12
Q

Payout ratio calculation

A

dividends per share
/
earnings per share

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13
Q

what does the Payout Ratio tell about a company?

A

the long term sustainability of a company’s dividend payments and policy

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14
Q

retention ratio

A

the percentage of income retained by a company

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15
Q

Retention Ratio calculations (2)

A

A:
1 - Payout Ratio

B:
Net Income - Dividends
/
Net Income

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16
Q

Dividend Yield Percentage calculation

A

total annual dividends per share
/
stock price per share

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17
Q

the dividend declaration date

A

the date then the board of directors declares a dividend payment

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18
Q

Ex-Dividend Date / Date of Record

A

the date of record is the date the company determined who owns the company stock for the purpose of receiving the dividend

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19
Q

to receive the dividend, the shareholder must have bought the shares before ____________ date

A

The Record Date / Ex-Dividend Date

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20
Q

The payment date

A

the date the dividend payment will be paid

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21
Q

Dividend Reinvestment Plans (DRIPS)

A

plans that allow investors to received dividends in cash or automatically reinvest the dividends in the company’s stock

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22
Q

Reinvested Dividend taxation

A

taxable as ordinary income in the year they are paid

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23
Q

why may capital gains be preferred over dividend payments?

A

due to the deferral of taxation on capital gains.

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24
Q

what does a stock slit do (2)?

A
  1. increases the number of issued and outstanding share of stock
  2. decreases the par value of the stock.
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25
Q

Reverse Stock Split

A

when a company wants to reduce the number of outstanding shares of corporate stock. This will increase the share price proportionately/

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26
Q

A round lot

A

100 shares stock

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27
Q

defensive stocks

A

are relatively unaffected by general fluctuations in the economy.

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28
Q

cyclical stocks

A

prosper during expanding economic times

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29
Q

blue chip stocks

A

issued by highly regarded investment-quality companies

30
Q

income stocks

A

make large dividend payments relative to other companies

31
Q

examples of defensive stocks

A

companies that provide everyday household items such as:
food
healthcare
household products

32
Q

examples of cyclical stocks

A

automobiles, paper, cement, airlines, railroads, machinery and steel

33
Q

examples of blue chip stocks

A

proctor & gamble
home depot
exxon mobile

34
Q

examples of income stocks

A

utility companies

35
Q

interest sensitive stocks

A

when the performance of a company is significantly affected by changes in interest rates

36
Q

examples of interest sensitive stocks

A

the housing industry

37
Q

value stocks

A

stocks that are trading low based on their historical earnings and current asset value.
tend to have low price to earnings ratios.

38
Q

Tech stocks

A

stocks in the technology sector

39
Q

the three classes of common stock

A

Class A
Class B
Class C

40
Q

Class A Common Stock

A

Is owners by regular investors and gets
1 vote / share

41
Q

Class B Common Share

A

is owned by company founders and gets
10 votes / share

42
Q

Class C Common Shares

A

Is owned by employees and gets
No voting rights

43
Q

cumulative preferred stock holder

A

a firm must pay any “skipped” unpaid preferred dividends from prior quarters before paying a dividend to common stockholders.

44
Q

who gets paid before preferred shareholders in the events of a liquidation?

A

secured and unsecured creditors will be paid before preferred shareholders receive any assets of the corporation.

45
Q

American Depository Receipts (ADRs)

A

certificates issued by US banks that represent ownership of a foreign company stock.

46
Q

what is the Down Jones use to measure?

A

the status of the equity market

47
Q

example of an equal-weighted index

A

NASDAQ

48
Q

example of a market cap-weight index

A

S&P 500

49
Q

market cap-weighted index

A

reflects changes in the value of the component companies, since larger firms have a greater impact than smaller firms.

50
Q

Long position

A

purchase of an asset in hopes that it will appreciate over time

51
Q

short sale

A

where an investor profits from an Assets declining value

52
Q

how much risk for seller retain for a short sale of an equity stock?

A

unlimited risk, if the stock’s price increases.

53
Q

who is responsible for the dividends paid during the short sale period?

A

the short seller

54
Q

margin accounts

A

where investors borrow funds from the broker to purchase additional securities.

55
Q

what is the margin position amount set by the federal reserve for an investor of a margin account?

A

minimum initial margin set at 50%

56
Q

margin position caluclation

A

account value - debt
/
account value

57
Q

margin call price calculation

A

debt
/
a - maintenance margin

58
Q

market order

A

is an order to buy or sell a security at the best current market price

59
Q

limit order

A

is an order to acquire or sell a security at a specific price

60
Q

what do limit orders enable?

A

the investor to set a purchase price lower than the current price and a sale price higher than the current price

61
Q

stock orders

A

used to limit losses or protect gains

62
Q

stop-loss orders

A

if the market price reaches a certain point, the stop order will turn into a market order.

used to protect investors from large losses

63
Q

stock-limit order

A

an order to buy or sell a stock that combines the features of a stop order and a limit order.

one the stop price is reached, a stop-limit order becomes a limit order that will be executive at a specified price or better.

64
Q

trailing-stop orders

A

allow an investor to place a stock order that trails the current stock price by a specific dollar amount or percentage.

maintains proximity to the current market price and does not have to be cancelled and re-entered at the price varies.

65
Q

who typically purchases round lots?

A

institutional investors

66
Q

odd lot

A

any trade with fewer than 100 shares

67
Q

bid price of a stock

A

the price a security dealer will pay for a security

68
Q

ask price for a stock

A

the price at which a security dealer will sell a security

69
Q

bid-ask spread

A

the difference between the two prices and is compensation paid to the dealer.

70
Q

the three methods of owning equity securities

A
  1. physical certificate
  2. street name registration
  3. direct registration
71
Q
A

HS328 Investment Planning (7 decks)

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